Canadian auto manufacturers stand to make gains as plants “bursting at the seams” on higher demand, Scotiabank report predicts.

A line worker works on a car after the visit of Canadian Prime Minister Stephen Harper at Ford Motor plant in Oakville Ont. on Friday January 4, 2013. Ford Motor's Canadian subsidiary is investing $700 million at its Oakville assembly plant west of Toronto, a move that it says will support thousands of jobs and increase the automaker's spending on Canadian-made parts.

Canada’s auto industry is poised to reap the benefits as nearly record high demand for vehicles has some plants across North American “bursting at the seams,” a report predicts.

While Mexico has been a big winner in recent years in attracting global auto industry investment, it won’t be able to meet all the increased demand in North America next year, Scotiabank auto analyst Carlos Gomes noted Wednesday.

With lower labour costs and a more favourable foreign exchange rate, Canada is in a better position to compete for added capacity, Gomes said.

“In this environment, the recent improvement in Canada’s competitive position leaves the industry on a much better footing than during most of the past decade, when Canada was viewed as one of the most expensive vehicle producing jurisdictions,” he wrote in his monthly Global Auto Report.

Canadian auto plants have made gains, Gomes said, noting Ford of Canada is investing $700 million to retool its Oakville assembly plant and General Motors has added a shift to its flexible manufacturing plant in Oshawa and postponed plans to close the consolidated line.

More is coming, Gomes predicts, noting that Canadian auto makers stand to benefit from the tentative free trade pact with Europe, where demand is rising for the kind of crossover utility vehicles assembled here.

His report appears to be at odds with other gloomier predictions that Canada will continue to lose auto production to lower cost jurisdictions such as the southern U.S. and Mexico.

Ontario remains North America’s largest single vehicle producing region, an industry that historically created thousands of good paying jobs and spinoffs. But it’s been in decline in the past decade.

A U.S. auto industry research firm predicted last month that Canada could lose as much as 25 per cent of its production by the end of this decade.

Canadian car makers produced 2.45 million vehicles in 2012, but that figure could slide by 600,000 as global auto makers shift production to Mexico, the southern U.S. and other emerging markets, according to AutomotiveCompass LLC.

Other data show Canada won just 5 per cent of new auto industry investment between 2010 and 2012, while Mexico won 14 per cent.

TD Bank said in August vehicle production in Canada was down 5 per cent in the first half of 2013 and is forecast to decline a further 4 to 5 per cent in each of the next two years.

But Gomes said vehicle production across North America is now at its highest level in nearly a decade, with industry-wide utilization rates at 90 per cent.

As pentup demand for vehicles boosts North American production to 17 million units in 2014 and a record 17.6 million by 2015, utilization rates could rise to 95 per cent, an unsustainable level, Gomes said.

Global auto makers will have to invest in additional capacity, he predicted, and Canada, with its lower labour costs and cheaper dollar, is poised to reap some of the benefits.

Canada’s “all-in” labour costs for new hires are just $32 an hour, compared to $37 an hour in the U.S., Gomes said, giving the country a 15 per cent advantage since the signing of a new labour contract between the Detroit Three and the Canadian Auto Workers in the fall of 2012.

The Canadian dollar, meanwhile, has fallen to $96 cents U.S. from a year ago level of $1.01 U.S., Gomes also noted.

“The key point here is just that the tightness in the overall industry suggests you’re not going to get the cutbacks or closures some reports have pointed out,” Gomes said in an interview.

Gomes’ prediction comes as global vehicle sales continued to climb, though at a slower pace, in September.

Global car sales rose 3 per cent in September, lower than the 6.5 per cent gains in July and August. The smaller gains reflect a temporary softening in sales in the United States, he said. In contrast, sales picked up in China, Western Europe and South America.

In Canada, car and light truck sales jumped 7 per cent to an annualized rate of 1.84 million units in October, up from the average 1.73 million units through September, he noted.

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